SME owners turn to personal loans amid funding crisis
Small business owners are taking out personal loans in order to plug a £22bn funding gap in the UK’s small- and medium-sized enterprise (SME) sector.
New research by software provider Codat has found 55 per cent of finance-seeking SME leaders have taken out a personal form of finance to fund the business.
More than a quarter of these business owners said that their business would grow faster if access to credit was easier.
47 per cent of SME owners who are in the market for credit said that they find it difficult to access external capital, and 73 per cent have a negative view towards the current financing options available.
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Alex Cardona, chief operating officer and co-founder of Codat, said that the use of open banking could improve access to business financing for SMEs.
“The small business credit landscape is not set up for businesses or lenders to succeed,” Cardona said.
“Lenders don’t have the necessary insight to make accurate decisions and the application process is so awful for SMEs that they’d often rather take out a personal loan to fund their business – or even make do without the cash they need.
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“The existence of this dynamic is completely unnecessary given that the technology to resolve it is readily available. An updated approach to open data can enable standardised data flows between SMEs and lenders, resulting in instant and consistent loan applications.”
It is believed that there is a £22bn access to credit gap in the UK, and Codat has found that SMEs are increasingly unable to afford the financial and administrative cost of applying for financing solutions.
“Closing the multi-billion pound funding gap will boost SMEs and fuel dramatic growth in the wider economy, it’s now just a question of making it happen,” Cardona added.
“Regulators must not miss out on the opportunity to keep the UK at the forefront of progressive technology regulation, and must not stall on the promising start made by open banking.”
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